So What Exactly Is Bitcoin Anyway?

In a nutshell, bitcoin is virtual money, Bitcoin is a tool to realize the vision of a true cashless society. It is the money that may run the future digital economy.

To give us a clearer picture of Bitcoin, we spoke with two key people: Miguel Cuneta, cofounder of the one of the biggest bitcoin companies in the Philippines, Satoshi Citadel Industries (they’re bitcoin exchange, trading and hedging on the virtual currency); and celebrity host and businessman Paolo Bediones, who’s also now the head of marketing and communications of Loyal Coin, a Filipino company also invested in bitcoin. They weigh in on the risks and rewards of getting into bitcoin, and if it really is the future of money or just a passing trend.

THE BASICS OF BITCOIN

So what is it exactly?

The smart term for it is cryptocurrency. The internet is already awash with information about it primarily because the world is going crazy at how something that is not “real” can be of so much value (we’ll go to this in a bit).

We’ll save you hours of reading by giving you the essentials: It was first put out as a concept in a mailing list back in 2008 by a guy named Satoshi Nakamoto (who may or may not even be real; until now no one knows who Bitcoin’s creator is). The idea was to have a peer-topeer electronic cash system that’s not controlled by a central monetary authority—what that means, really, is money that is not controlled by the banks.

Instead of banks, bitcoin flows through what is called a blockchain, a virtual ledger of all transactions made through bitcoin. Imagine it like a spreadsheet that is being updated regularly, storing all bitcoin movements. Nobody holds control of the blockchain—it is accessible to the public and is easily verifiable. Hence, no central authority. The blockchain is, in effect, the Central Bank and Federal Reserve of everyone.

It’s interesting to note that transacting with digital money is not a new thing, especially if you’re a gamer. In fact, the first people to actually trade with bitcoin were Magic: The Gathering players. They used to have an online exchange to trade cards like stocks, using bitcoin as currency. This online exchange became Mt. Gox (Magic: The Gathering Online Exchange. Gets?), the world’s largest bitcoin exchange. Only Mt. Gox declared bankruptcy in 2016, after a crazy run that involved hacking and stealing.

Continue reading below ↓

Why are people going crazy about it?

Because of its value. As we write this, one bitcoin (1 Satoshi is the basic unit) is worth more than $18,000 or about P900,000. After we wrote that last sentence, it could have gone higher than that, or plummeted to the ground. It’s that volatile. Also, latest news as we write this is that a co-founder of the current largest bitcoin exchange in the world has sold all his bitcoin for another cryptocurrency. However, that has not stopped the financial world from treating it as gold, trading and hedging futures on it.

How did it end up worth that much?

Because of speculation. “In the beginning, walang value ang bitcoin eh kasi nga wala namang may pakialam sa kanya,” Cuneta says. “Hanggang sa unti-unting dumadami [people who took interest], that’s when it began to have value. Walang taong nagsabi kung magkano ang value niya, yung market ang nakahanap ng value for it.” Case in point: Bitcoin was first sold at P5 per coin seven years ago. What did we say it was worth now? Do the math on wild exponential profit.

We've heard it said that bitcoin is like gold. How come?

Gold is a finite resource. Most of the world’s financial systems are backed by gold, called the Gold Standard. This means that the value of a country’s money is determined by the gold reserves they have. Bitcoin is also finite—there are only 21 million bitcoins in existence; its creator made it that way. Here the law of supply and demand rules: if there are only so many bitcoins and a lot of people want it, its value rises. Hence, people treat it like digital gold. (Interestingly, the US dollar is not backed by gold. Their money is worth what their government says it is. Some say that in reality it is worth nothing. This is the crux of the debate between real money and bitcoin.)

If one bitcoin is worth almost a million pesos, how can I even buy one?

The good news is that there is no minimum amount when buying or selling bitcoins. Say you only have P10,000. You can exchange that for .01 bitcoin with companies like Satoshi Industries, Coins.ph, Buybitcoin.ph, and others. You can also purchase a bitcoin using Cliq kiosks that can be found in convenience stores. Have your “real” money transferred to your e-wallet. Once there, it can be converted into bitcoin through the app’s services. You can also go into bitcoin mining, the process of adding transaction records to the blockchain. As mining involves a lot of effort that includes complex mathematical computations using supercomputers to check transactions and detect any illicit activities, the bitcoin network rewards the miners by handing them newlymade bitcoins.

Continue reading below ↓

What can I buy with .01 bitcoin?

There are now businesses in the Philippines that accept bitcoin as payment, including Bediones’s own Punta Mandala restaurant in Mandaluyong City. At Punta Mandala, you can buy a plate of nachos, sisig, and liempo, each of which costs P250, for 0.00025 bitcoin.

To pay, you scan their QR code that’s available in the counter. You will need an e-wallet app like Bitbit, the e-wallet service of Cuneta’s company. Upon scanning, you input some basic info including, of course, the amount that you are paying. That’s it. You can also pay using bitcoin in online stores that include bitcoin as a payment option. Metrodeal and CashCashPinoy, both daily deal websites, are among the online businesses that have already started accepting bitcoin payments.

This story originally appeared in the January 2017 issue of FHM Philippines. Grab a copy to read more. Minor edits were made by the FHM.com.ph editors.